Taking over from a CEO: How to make a success of succession

Mark Read, left, has been named as WPP's new chief executive after Sir Martin Sorrell resigned earlier this year

Although Mark Read has worked for the advertising giant WPP since 2002, he has big shoes to fill as he steps into the chief executive role. The advertising giant’s founder Sir Martin Sorrell transformed WPP over three decades from a wire basket manufacturer to a media conglomerate worth more than £20bn. Sir Martin became synonymous with WPP and it with him.

Mr Read now faces the tough task of making a success of succession. While some have managed this feat, such as Tim Cook when he assumed the role of chief executive of Apple following founder Steve Jobs, others have failed.

Take Philip Clarke, for example. The 58-year-old Liverpudlian was appointed chief executive of Tesco in 2011, taking over from Sir Terry Leahy, who ran the company for 14 years and was credited with turning it around and increasing its market share from 20pc to 30pc.

Mr Clarke’s time in charge was marred by falling sales, profit warnings, the horsemeat scandal and the revelation of a £250m accounting black hole. Tesco reported a £6.4bn loss, the worst results in its history, a year after he was ousted in 2014.

Steve Ballmer, former chief executive of Microsoft, faced the daunting task of taking over the business from megastar Bill Gates in 2000, at the end of an explosive growth period for the company.

His 14-year run as boss of one of the world’s most valuable companies received a mixed reaction from critics, who noted that while he had trebled sales and profits at the company, he also failed to take advantage of emerging trends in the tech space, falling behind rivals Apple and Google, which were, and continue to be, seen as more modern by consumers.

According to research conducted by Professor David Larcker of Stanford University’s Graduate School of Business, replacing “visionary” founders such as Amazon’s Jeff Bezos, Tesla’s Elon Musk or Warren Buffett of Berkshire Hathaway would be significantly more challenging than it would be for larger, more traditional public companies.

When 113 directors of Fortune 250 companies were asked to say how many people could do the job of these visionaries, the majority believed just two could replace Mr Bezos; three for Mr Musk and Mr Buffett.

The bosses of IBM, Procter & Gamble, General Motors and Pfizer could apparently be replaced much more easily with as many as 14 to 15 viable successors, the research found.

Steve Ballmer trebled profits at Microsoft while he was CEO, but also failed to take advantage of emerging trendsCredit: Stephan Savoia/AP

So what can incoming chief executives and their companies do to manage succession well?

Lucy McGee, senior client partner at consultancy Korn Ferry, said company boards cannot become obsessed with a former chief executives’ legacy, and must be realistic about the good and bad things they introduced at the organisation.

“Successors should bring stability to make a statement to shareholders and stakeholders. They should be seen as a safe pair of hands and be able to bring an organisation together in a consistent way,” she added.

A successor should take time to understand what has made the business successful in the past

Mark Witkin, KPMG

Research shows internal successors tend to deliver better financial results, drive better shareholder returns and are up to six times cheaper than external successors, except when they are being brought in as part of a turnaround of a business, she said.

Mark Witkin, a consultant at KPMG who advises privately owned businesses on succession planning, said the search for a successor should be done “slowly and methodically”.

“A successor should take time to understand what has made the business successful in the past. This could be particular business practices, or a set of core business values. Whilst a successor may want to make changes in order to stamp their own identity on the business, change for change’s sake can be damaging,” he said.

“For the company itself, leadership succession can be a difficult period. Creating a communication strategy for the transition period can help provide reassurance to employees and other stakeholders.”

Tim Cook is seen by many as a successful successor to Apple's Steve JobsCredit: David Paul Morris/Bloomberg

From a legal perspective, ​Daniel Varney, partner at commercial and corporate law specialist BLM, said while the prospect of a new leader might raise questions over how a brand will continue to thrive, it also raises very real concerns over intellectual property. “You must consider the rights of a founder to aspects of the brand, especially if they literally act as the ‘face’ of their business,” he said.

Mr Varney cited the legal difficulties surrounding Papa John’s and how IP agreements played into discussions around succession planning. The Associated Press reported earlier this year that the pizza chain, which has featured founder John Schnatter as a spokesman in logos and TV ads, had begun pulling his image from its marketing materials after he stepped down as chairman in July because he used a racial slur.

James Reed, who succeeded his father as chief executive of Britain’s biggest jobs site Reed Executive in 1997 after Sir Alec had been at the helm of the business for 32 years, said: “It was a tough act to follow. And while it is very important to respect an outgoing chief executive’s legacy, it’s also worth remembering that a company is built by all the people that work there.

“When I took over from my father I concentrated on looking forwards, addressing what customers wanted, and I knew I wanted to make the business more tech-focused.”

James ReedCredit: Chris Gloag / Piranha Photography

During James’s tenure he created Reed.co.uk, the first recruitment website offered by an agency in Britain, and quadrupled the size of the business. “One of my main objectives was to become a £1bn company, which we achieved. Under my father it was worth £150m.

“The business now employs 3,500 people and is in 180 locations around the world.”

Mr Reed added: “I learned from my father to go out and meet new people and not spend too much time in the business.

“We still discuss the company every time we see each other. At the age of 84, he’s still a source of great ideas.”